That’s a very good question and one that does not have easy answers. For one person, they may need to pay off debt. Another may benefit from money in the employer sponsered retirement fund. So, the answer boils down to how your money can best be put to work for you.
If you make extra payments on a specific debt, you are essentially earning a return on the interest rate of that debt. For example, if you’re paying a credit card with a 14% interest rate, you are basically getting the same benefit as if you put away that money & earned a 14% growth on it. That rate of return would be difficult to match in your retirement portfolio on a long-term steady basis. So, if you’re carrying a balance on a high-interest rate credit card, your money may be best put to work paying down that balance.
However, paying down a house debt could be important to you. But, if you pay off debt of your house in lieu of setting aside money for your retirement, you may be making a mistake. That’s because the house interest rate debt is low (maybe like 5%). But, the compounded interest increases your earning potential over a long period of time. Therefore, the time-value-of-money will bring more benefit to you than trying to shave off a couple years on your mortgage. But, yes, there may be a good reason to want to pay off your mortgage debt. Entering retirement age debt-free is strategic & wise move. Therefore, the key is to think strategically & carefully about growth versus debt interest rates in relation to your overall goals & circumstances.
If you get matching contributions from your employer for your 401K account, it’s free money. That free money can increase the growth potential of your retirement plan account. If your employer offers it, try to take full advantage of the matching program. However, if your company does not offer a match plan, there are still huge tax advantages & long-term growth potential of even small contributions.
With a little budgeting & financial discipline, you may be able to pay off debt and save for retirement through your employer-sponsored plan.